The Italian Tax Authorities, through Ruling no. 379/2019 issued on September 11, 2019 (the Ruling), have clarified the tax treatment of interest on loans paid by Italian tax resident individuals to Swiss banks that do not operate in Italy through a permanent establishment.
The Tax Authorities distinguish between two scenarios: (i) when interest is paid directly to a Swiss bank and (ii) when interest is paid to a Swiss bank through an Italian resident intermediary (fiduciary company) acting as withholding tax agent.
The Ruling confirms the interpretation already stated in the previous Ruling no. 41/2018. In this scenario, the proceeds are qualified as Italian-sourced income in the hands of the Swiss bank which has specific tax obligations (i.e. tax return submission and tax payment) in Italy. Such obligations shall be met:
- directly by the Swiss bank, if no Italian withholding tax agent is involved in the transaction; and
- by the Italian withholding tax agent that pays interest to the Swiss bank on behalf of any Italian tax resident individual.
Moreover, the Italian Tax Authorities have stated that double tax treaties (DTT) shall be applied to avoid double taxation. In the case at stake, a 12.5% tax rate applies as set forth by Article 11 (2) of the DTT between Italy and Switzerland, and the conventional tax rate applies both in case a withholding tax agent is involved and if the interest is directly paid by the individual.
In this connection, the Italian Tax Authorities and the Italian Tax Police (jointly, the Authorities) are currently gathering information from Italian natural persons who have benefited from the voluntary disclosure program and/or - on the basis of the CRS automatic exchange of information - are found to hold financial activities abroad, in relation to:
- any potential loans received from non-resident Banks in which they hold/held financial activities; and
- any potential contact made on Italian territory with officers of such financial institutions.
In the most serious cases the Authorities submit a report to the Italian Public Prosecutor, who may proceed with the enrolment of the Bank officers (and the Bank itself) in the Register of persons under investigation for the crimes of omitted tax return, abusive financial and bank activities pursuant to Legislative Decree n. 231/2000 and money laundering.
However, specific solutions to limit risk and manage dawn raids can be implemented, such as (i) tax, regulatory and criminal internal investigations/check-up and (ii) approaching the various authorities involved (tax, criminal and regulatory) to limit the exposure and plan for the future, aiming also to secure operations in Italy.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.